SEBI Board Meeting: Rights Issue To Insider Trading — Probable Discussions

The Securities and Exchange Board of India is set to hold its board meeting on Monday and the entire market landscape has an eye out on what will be on the regulator’s agenda. 

NDTV Profit previously reported that the regulator may approve tighter curbs on F&O trading due to the immense losses faced by the individual traders.

Additionally, the board may discuss the introduction of a new asset class between mutual funds and portfolio management services to offer investors more diversity in investment management.

Another issue that can be on the agenda of the regulator’s board is employee dissatisfaction with the regulator and measures to address and resolve them.

The market regulator’s Chairperson Madhabi Puri Buch had mentioned at the AMFI event recently that SEBI is on the verge of bringing MF lite regulations and has had detailed consultations on the subject. She mentioned that there needs to be some relaxation in terms of the distribution of these kinds of funds. 

SEBI had come out with a paper on the MF lite regulations previously, to relax the compliance requirement and foster ease of entry for those mutual funds that planned to move towards the arena of passive schemes only.

Another policy-related topic for the board could be to fast-track the rights issue.

In this proposal by SEBI, the major change is removal of the requirement for companies to file a draft letter of offer with SEBI. Instead, only essential information such as the purpose, pricing, record date, and entitlement ratio will need to be disclosed, simplifying and speeding up the approval process.

Currently, preparing detailed offer documents can take 50–60 days due to the extensive due diligence by merchant bankers. SEBI's new framework aims to cut delays by streamlining these requirements.

For rights issues under Rs 50 crore, companies may no longer need to appoint a merchant banker, shifting responsibilities to the issuer, registrar, and stock exchanges.

Additional proposals include transferring the operation of rights issue escrow accounts to designated stock exchanges and enabling real-time validation of applications to further enhance efficiency. SEBI is seeking public feedback on these proposed changes.

Another policy issue is the harmonisation of the issuance of capital and disclosure requirement regulations and the listing obligations and disclosure requirements. 

In good news for research analysts and investment advisors, the regulator may take up the proposal to ease their certification norms.

The previously put-out proposals mentioned that applicants will only need a graduate degree instead of a postgraduate degree. Certification will require passing the National Institute of Securities Markets exam just once, with ongoing education focused on recent developments for renewals.

Moreover, there will be no work experience requirement, which aims to level the playing field with mutual fund distributors.

Additionally, the proposal removes the minimum net worth requirement, replacing it with a deposit that increases, based on the number of clients and the advisor's revenue.

Another issue that the regulator has been quite vocal about is the issue of insider trading. SEBI has proposed new measures to expand insider trading regulations.

Key changes include redefining “connected person” by replacing “immediate relative” with “relative", aligning it with the Income Tax Act.

The updated rules will also introduce new categories of connected persons, including firms and their employees, advisors to connected persons, and corporate bodies influenced by them. Additionally, individuals with significant financial ties to connected persons, such as shared households or financial dependency, will be covered. 

In Hindu undivided families, if a “Karta” is a connected person or their relative, this will also be included.

SEBI has proposed introducing "summary proceedings" in the Intermediaries Rules to handle violations of securities laws by intermediaries more efficiently. This move aims to simplify regulatory processes and speed up enforcement actions.

The consultation paper suggests reintroducing summary proceedings, which were previously part of SEBI regulations but removed in 2008. These proceedings will target straightforward cases, such as non-payment of fees and late reports, which currently face lengthy processes.

The regulator had also recently suggested a new classification system for merchant bankers, dividing them into two categories based on their net worth.

This could also be on the agenda for approval. Existing merchant bankers will have two years to meet these new net-worth requirements progressively, with a transitional period to facilitate compliance.

Category 1 firms, which must maintain a net worth of at least Rs 50 crore, will be allowed to undertake all permitted activities.

Category 2 firms, with a minimum net worth of Rs 10 crore, will be restricted from handling the mainboard issues.

Last year, SEBI had came out with a proposal to set up a Performance Validation Agency to validate any claims of performance by registered intermediaries including investment advisors, research analysts and portfolio managers. This could also be on the board's agenda.